Why are the banks pushing HELOCS?

Every time I call my bank to do something (such as pay off my loan yesterday) they try to get me a Home Equity Line of Credit (HELOC). They see I have a mortgage, and I have debt, and then try and convince me to apply for a HELOC. Do they get commission on these applications? Because I have been turned down for a HELOC before. Reasons: too much debt, and self-employment income, which they won't count as "real" income for another few years.

By why push the HELOC? It would be a cut in interest rates for me to be able to consolidate loans, almost by half these days- from 8.75% to 4.75%. So it seems counterintuitive that the bank would want to push the HELOC. Do they imagine I won't pay off the other debts, thus being more in debt? Or, as I said, does CIBC simply pay a commission to its customer service reps for getting at least an application started? I can understand if they were pushing a high interest credit card instead!

The other interesting part of the conversation on the phone with the bank yesterday was when the guy asked me what I planned to do with my current line of credit (which is maxed). Pay it off of course, I said, just like I just paid off one of my current loans with you today. I found this question absurd. What I else would I do with debt? Keep digging a hole? Been there, done that, no thanks! As soon as that debt is paid that LOC will be closed. No more keeping such things open "just in case" I have proved myself inept at managing such tools, so I am cutting myself off.


  1. Ugly Debty said...
    I love how they LOVE, LOVE, LOVE you when you've got a bit of available credit built up. "What are you going to do with it?" haha!
    Mrs. Micah said...
    I'd understand the credit card better too. But I think they're hoping that you'll spend BOTH. And that with the HELOC, you'll treat it like a low-interest credit card but carry a higher balance all the time...imagine a $20k HELOC with 4.5% interest. If you always carried $20k, it'd be hundreds in interest each year. Which is more than, say, a $1000 loan/line at 10%.
    Sharon said...
    Ha! Too funny, my husband and I have been in a "I want" faze for the last two years....major debt....never again. Once we get these things paid off we are cancelling....some people say to keep the accounts open so that you show "credit available" and it will help your credit score, however when you tend to use it...I say cancel it. We own our home (well the bank does) so we aren't looking to purchace anytime soon. I can take a temporary hit on my credit vs being in so much debt. I get so stressed with the debt.
    nancy (aka money coach) said...
    Hi there - I don't (and never have) worked in the lending department (full disclosure: I'm Bank Evangelist for Citizens Bank of Canada, in addition to my money coach business) but a slightly more charitable interpretation could be -- moving from an unsecured LOC to a HELOC is a win/win. You get the better rates,and the bank has secured, rather than unsecured, lending relationship with you.

    Again, I'm not giving an "official" explanation (and besides, banks may have different reasons for doing the same thing) but I think this explanation is plausible.

    re: commissions, I doubt it, but it's possible. At our bank, agents are expected to keep alert to options that may (genuinely) work in the best interests of both our members and the bank, and ask, but there's certainly no commission involved. There performance evaluations, however, would suffer if they never asked questions about other products.

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